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The impact of volatility on economic growth

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  • Aurelijus Dabušinskas
  • Dmitry Kulikov

    ()

  • Martti Randveer

    ()

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    Abstract

    This paper investigates the impact of macroeconomic volatility on growth in a panel of 121 countries over the period 1980 to 2010. We confirm the Ramey and Ramey (1995) result that macroeconomic volatility is negatively related to economic growth using a different empirical methodology and a newer dataset. Among the issues that await further work are the interaction of financial development and volatility, potential non-linearities of the impact of macroeconomic volatility on growth, and issues related to the endogeneity of growth and volatility in the context of empirical growth regression models

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    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2012-7.

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    Date of creation: 04 Feb 2013
    Date of revision: 04 Feb 2013
    Handle: RePEc:eea:boewps:wp2012-7

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    Related research

    Keywords: economic growth; macroeconomic volatility; growth regressions; panel data;

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    References

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    1. Aghion, Philippe & Banerjee, Abhijit, 2005. "Volatility and Growth," OUP Catalogue, Oxford University Press, number 9780199248612, Octomber.
    2. Paolo Surico & Luca Antonio Ricci & Pierpaolo Benigno, 2010. "Unemployment and Productivity in the Long Run," IMF Working Papers 10/259, International Monetary Fund.
    3. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
    4. Benigno Pierpaolo & Surico Paolo & Ricci Luca Antonio, 2011. "Unemployment and productivity in the long run: The role of macroeconomic volatility," wp.comunite 0085, Department of Communication, University of Teramo.
    5. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    6. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    7. Enrico Berkes & Ugo Panizza & Jean-Louis Arcand, 2012. "Too Much Finance?," IMF Working Papers 12/161, International Monetary Fund.
    8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    9. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    10. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
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